Oil Crisis Started 30 Years Ago
By Peter Goodchild
30 October, 2006
is customary to look for the critical year of oil production in absolute
terms, but in the year 1970 or thereabouts there was another important
"conjunction," to use an astrological metaphor. Global production
will peak at some point in the early 21st century; it may have already
done so, although the mendacious accounts of remaining reserves make
exact dates impossible to determine precisely. Nevertheless, in many
senses it is not 2005 or 2010 that is the critical date, but rather
the early 1970s.
In the 1950s M. King Hubbert
found that as the years went by, U.S. domestic oil production was decreasing,
mainly because new discoveries became fewer and smaller. The changes
in production could be plotted on a graph, forming the left side of
that familiar shape known as a bell curve. Looking at the graph, Hubbert
could see that the peak of American oil production would be about 1970;
after that, there would be a permanent decline. When he announced this,
most people laughed at him. But he was right: after 1970, U.S. oil never
For thirty years, therefore,
the U.S. trade deficit has been heavily effected by dependence on foreign
oil. Thomas D. Kraemer, in his report for the U.S. Army, states that
"fully one-quarter of the U.S. trade deficit is associated with
oil imports." Lauren Poole, a writer and editor for the National
Renewable Energy Laboratory in Colorado, adds that "the United
States had a trade deficit of $449 billion dollars in 2000; $90.2 billion
(approximately 20% of the total) was the value of imported oil. . .
. It is projected that petroleum imports will account for 60-70% of
the U.S. trade deficit in the next 10 to 20 years."
In terms of family income,
the "American dream" started to become less realizable in
the 1970s. According to the U.S. Census Bureau, the lowest twenty percent
of families had a decline in mean income (in adjusted dollars) between
1979 and 1994: from $13,263 to $11,955. In the meantime, the top five
percent of families were watching their incomes skyrocketing. Actually,
as Bernstein points out, upper-level incomes do not fully appear in
Census Bureau reports: capital gains, executive bonuses, and other perks
are somehow not counted as income.
The 1970s were also the start
of the era of globalization. By the end of the century, companies such
as General Motors, Wal-Mart, Exxon Mobil, Ford, and Daimler Chrysler
were richer than entire nations. By the year 2000, of the world's one
hundred leading economies, fifty-one were corporations.
The 1970s were the beginning
of "wage arbitrage": shopping for cheap labor. International
corporations move their factories to where they find the cheapest workers.
Unfortunately, if the factory starts doing well, it is inevitable that
the workers will start asking for slightly more than starvation wages.
Even the government itself might start to become greedy. The workers
might succeed, and the country's standard of living might rise. The
punishment is simple: the international company packs up and moves to
a country where the workers are still "uncorrupted."
Most of the wage arbitrage
in the 1970s was due to competition among the developed countries, the
OECD countries. It was European workers who first took jobs away from
American workers. Now, however, it is the poorest countries who fill
At the same time, this was
the beginning of "international poker." One of the most harmful
aspects of the global economy is currency speculation, playing the "money
market" - also known as the "currency market" or the
"financial market" - the practice of exchanging one nation's
currency for another, in order to make a profit from the relative increases
or decreases in value. Although currency speculation is rarely the immediate
cause of financial crises, it is never absent from them.
In 1973 the main industrial
nations ended the practice of fixed exchange rates for their currencies;
this innovation was supposed to create greater stability among the world's
currencies, but actually the opposite happened. George Soros, the billionaire
head of Soros Fund Management, describes the swing of exchange rates
as more like a wrecking ball than a pendulum. Money-market investors
- like investors of any other sort - are generally short-sighted, and
they are possessed of herd mentality: when a currency starts to gain
value, it then becomes attractive to those investors who have not previously
bought it, and the result is an even greater increase in value. The
same is true of a currency that starts to fall: as soon as the decline
becomes a matter of public knowledge, a panic ensues, everyone tries
to get out, and the small loss turns into a major collapse.
All of these problems could
have been averted with proper leadership, if that is not begging the
question. As E.F. Schumacher points out, the only problem with The Limits
to Growth, first published in 1972, is that the authors should have
focused more on the loss of petroleum. But all the problems stated in
that book have been largely obliterated from human memory by widespread
denial of their existence: a gentle but persistent flurry of skepticism,
of not-quite-deliberate misinformation, appears on the back pages of
newspapers and magazines. The reports were exaggerated, we are told,
or the predictions never came true. Or we are reminded obliquely of
Adam Smith's "invisible hand": control of the economy is,
in some sense, unnatural, and if we would only allow market forces to
have free play, all the temporary anomalies would be sorted out. The
economy is something like God, in a Deistic sense, and we should have
respect for all those gears and pulleys and levers that are beyond our
Many economic forces were
coming together in the early 1970s: oil decline, income disparity, wage
arbitrage, currency speculation. There was a synergy at work: all four
problems resulted in the erosion of the U.S. economy. Everything tangible
was disappearing: the natural resources, the manufacturing base, the
hard currency. The present image of the United States is that of someone
waving a credit card that merchants are starting to dislike, knowing
that the owner's debts are both "astrological" - to use our
earlier metaphor - and "astronomical."
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Peter Goodchild can be reached at: email@example.com
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